Will Chinese companies invest in British nuclear power?

The papers are now almost swimming with stories that leading Chinese nuclear companies are about to step in and buy up concessions for building nuclear power plant abandoned by the German companies RWE and E.ON in Anglesey and Gloucestershire. See for example http://www.businessgreen.com/bg/news/2193381/china-in-talks-to-build-uk-nuclear-power-plants
This makes interesting coverage of course, something bound to distract attention from the near-impossibility of funding new nuclear power under British liberalised electricity markets - without, that is, somebody agreeing to write a blank cheque to the nuclear developers. Attention thus shifts from the incredible stories of nuclear needing over £160 per MWh for 25-30 years to debates about the ethics and security issues surrounding Chinese control of our forthcoming nuclear power stations.

Chinese companies (Russian, or whoever) may or may not buy up concessions for nuclear sites, but they are no more likely than E.ON, RWE, GDF Suez or EDF to actually build on them. As has been pointed out elsewhere financial markets are global (they have been for a long time actually) and the rate of return required by Chinese investors will be no less than anybody else. Chinese citizens and electricity consumers have even less of an incentive to give very very large subsidies to build nuclear power stations in Britain than, well, British people. The Chinese are busy trying to raise money for their own nuclear power programme, see
http://online.wsj.com/article/SB10001424052702303665904577449784005256706.html

However, in China they do not have liberalised electricity markets. There the state, the electricity consumer, or a mixture of the two, will be guaranteed to pick up the tab for power station construction. Not so in the UK.
In the UK any company is going to have to take a lot of debts onto its balance sheets to pay for new nuclear power stations, with no guarantee of paying back these debts. Banks, including Chinese ones are only going to risk their money on nuclear power in a conventional 'project financing'  operation where the debts are kept of company balance sheets. But the banks will not touch such an arrangements. Developers will have to raise the money to do this, and it will linger mightily on their balance sheets traising the alram of the credit rating agencies. Of course the Chinese can riase money through bond issues - so can EDF, relatively cheaply. That is not the problem. The problem is that the resulting debts will be borne by the equity investors, the shareholders.

So any developing company is going to have to invest equity and that means deferring profits and dividends in order to repay the debts with interest. In the case of nuclear power stations this means building up very large debts to build the plant without any prospects of getting any money back for several years. The costs and build-times for the plants are highly uncertain. Rates of return to equity have to be high to avoid profits, dividends and share prices from tumbling.

So if you mix togather the spiralling construction costs of nuclear power plant and the high rates of return to equity, you get the incredibly high prices that British electricity consumers would have to pay for new nuclear power. Offshore wind is a breeze by comparison.

Will the Chinese actually build any nuclear power plant in the UK? No, they won't. Essentially this is another of a contimuing (and for the forseeable future) never-ending stream of hopeful stories pushed out by a nuclear industry and struggling nuclear-dominated Department of Energy and Climate Change designed to persuade us all that nuclear power is till a going concern. It is not. Not without givernment agreeing to underwrite the construction costs. But this is also very unlikely.

Some rumours suggest that Treasury guaranteed money will come from the 'infrastructure funds'. But the design of the scheme, to put it briefly, will not help nuclear power. But the nuclear industry are ever hopeful. 'Nuclear before homes' is what they cry. But the most anybody is likely to get is around 10 per cent of the funds guaranteed. Nuclear needs more like 100 per cent! Ed Davey has said that nuclear will not get a blank cheque. and the Tories have specifically promised not to underwrite nuclear construction costs in an energy policy document issued just before the 2010 General Election. In an answer to a Parliamentary Question ministers have said they have not discussed loan guarantees with EDF. See

http://www.publications.parliament.uk/pa/cm201213/cmhansrd/cm120716/text/120716w0003.htm#12071634001439

The latest news from unidentified spokespersons (probably within DECC), according to the Financial Times of July 23rd, is that the Government will set a 'strike price' of £100 per MWh for nuclear power.It could hardly set it any higher considering that this is the figure the Treasury wants offshore wind power to come down to, and it is a lot more than offshore windfarms are going to be paid.

Yet even this is a soft landing for a policy retreat. The Government may say that £100 per MWh is profitable for nuclear power, but it is unlikely to lead to any being built. Lots of rumours, hopeful stories, yes, because the British Government (and the nuclear industry) does not want to admit that nuclear power is a dead duck - this would threaten lots of nuclear interests who want money from the Government and hopeful punts from Chinese and other interests to keep them in some sort of buisness. Indeed, without the appearance of the possibility of nuclear power the Government might be pushed into investing more in wind power and solar power! Just at a time when the Treasury prefers to subsidise gas fired power stations.

It's official - nuclear power IS more expensive than offshore wind

See the story in the Times that EDF wants to be paid £165 per MWh (198  euros per MWh) for its proposed 3.2 GWe reactor and Hinkley C in Somerset, UK. In the story below they (EDF) claim this is still cheaper than offshore wind. In fact currently, under the UK Renewables Obligation offshore windfarms that have been recently and are now being installed are being paid around £135 per MWh (2xs £42.00 per MWh renewable obligation certificate value plus wholesale electricity price at £50 per MWh).  EDF has been forced to come clean on nuclear costs, so now it is making dubious claims about offshore wind.

In the UK solar pv is now being paid £160 per MWh and onshore wind £92 per MWh – and wind power prices are inflated by the inefficiencies of the Renewables Obligation (compared to the ‘feed-in tariff’ system price that is quoted as the basis for EDF nuclear power). In addition, of course, the consumer will be locked into paying for nuclear for 25 years under the EDF plan, whereas the renewable energy support only lasts for 15 years.

Will the British Treasury sign off on this plan to increase average British electricity prices by 8 per cent for 25 years to produce 6 per cent of UK electricity from nuclear power? I don’t think so. See earlier blog 'Why it is impossible for the Government to fund Hinkley C' for more details and comment.

http://www.thetimes.co.uk/tto/business/industries/utilities/article3476326.ece

French demand high price for ‘rescuing’ nuclear industry with two new reactors

Tim Webb

Last updated at 9:00PM, July 15 2012

Families and businesses are being asked to find an extra £2.8 billion a year for the next 25 years by EDF Energy as the price of rescuing Britain’s faltering nuclear power programme.

The Times has learnt that the French state-backed energy giant will not build two new reactors in Somerset without huge subsidies, paid for through fixed levies on the electricity bills of consumers and businesses for decades to come.

The company has begun talks with the Department of Energy and Climate Change about its planned £14 billion Hinkley Point nuclear plant and intends to decide at the end of the year whether to go ahead.

Under the Government’s electricity market reforms, low-carbon generators will earn more than the market rate for electricity to make it economic to build nuclear plants and offshore wind farms.

According to well-placed industry sources, EDF Energy has told officials that it needs about £165 per megawatt hour, almost four times the existing wholesale price of electricity, if it is to go ahead with Hinkley Point.

City analysts said that the additional cost of building these two reactors at such a heavily subsidised rate, rather than, for example, cheaper gas-fired plants, would be £68 billion over 25 years, or an average of about £50 extra a year on every household bill. Businesses would be face an even bigger charge.

John Sauven, the executive director of Greenpeace UK, said: “Anyone who is able to turn on a calculator can now see that the nuclear industry has been misleading us for years. The Government’s energy policy is based on the fiction that nuclear power would be cheap. At these prices, it would be a very costly mistake that would see consumers paying billions of pounds in subsidy for decades to come.”

The Government has warned EDF Energy, and its junior partner Centrica, that nuclear power subsidies must be lower than offshore wind power to ensure public acceptance. The company argues that the total costs of the giant new offshore wind projects planned for the North Sea will be £180 per mw/h, making nuclear slightly cheaper.

Spiralling nuclear costs could force the Government to abandon or reduce its nuclear new-build programme. The Times revealed in June that the cost of the Hinkley Point project had soared by 40 per cent to a mid-range estimate of £14 billion. EDF Energy wants to build at least four reactors in the UK.

A spokesman for EDF Energy denied that it would negotiate with the Government for a £165 per mw/h subsidy, claiming that it was “too early to talk about specifics”. A source close to the company did say, however, that it had begun modelling different scenarios for the level of subsidy required.

One senior City analyst said: “I wouldn’t be surprised they want to keep that number out of the public domain.”

The Government will offer special subsidies to EDF Energy because its package of electricity market reforms will not be ready for several years. Last week, the coalition appointed the accountant KPMG to represent it when formal negotiations begin.

EDF Energy said that the subsidy for nuclear “will represent a fair and balanced deal for customers. It will show the cost competitiveness of nuclear new build. The process will be transparent — and the details published in due course.”

Learn about policy options for implementing renewable energy by making amendments under the forthcoming Government Energy Bill at a Conference on January 18th at the University of Birmingham: http://www.claverton-energy.com/wp-content/uploads/2012/11/Feeding-Renewable-Policy_yc_5_10_2012.pdf

END

 

Why the EU should say ‘no’ to Tory blackmail

The EU should say ‘no’ to the ‘renegotiation’ of British terms of EU membership – even if it means the UK leaves the EU. The English Conservatives are gearing up to demand ‘renegotiated’ terms of UK membership of the EU, but the EU should firmly reject such ideas on grounds of democracy, EU coherence,  social equity, and to protect the EU's green energy strategies. Of course a key part of EU legislation that the English euroskeptics would want to jettison are environmental laws and Directives such as the Renewable Energy Directive and other green energy initiatives.  The UK is constantly dragging its feet on these things.

The background to this is that the Conservatives are under pressure from the United Kingdom Independence Party (UKIP) who are competing for right wing nationalist support with the Conservatives. The Conservative right do not like a lot of EU social and environmental  legislation anyway. However, the business community is in favour of continued UK membership on economic grounds – they want access to EU markets on the same terms as the businesses from the other member states.  Hence the Conservative leadership is looking for a compromise. They want to negotiate away social and environmental legislation and stay in the EU, also retaining their voice on matters related to the ‘Single Market’ of the EU, something which Mrs Thatcher agreed to join in the mid-1980s. As David Cameron said earlier this week: 'Whole swathes of legislation covering social issues, working time and home affairs should, in my view, be scrapped.'

http://www.telegraph.co.uk/news/politics/david-cameron/9367479/David-Cameron-We-need-to-be-clear-about-the-best-way-of-getting-what-is-best-for-Britain.html

Last autumn former Conservative cabinet minister John Redwood commented on his blog:

‘In areas like energy, environment and business we are effectively governed from Brussels for much of the time’ http://johnredwoodsdiary.com/2011/10/15/the-balance-of-the-cabinet/

There is some logic in all of this from a Tory point of view. The euroskeptics may well be aware that if the UK leaves the EU then the UK will have, in any case, to adopt laws and regulations to enable the UK enter and compete in EU markets. So, if we leave the EU the UK will be worse off (in the Tory sense) in that the UK will still have to adopt lots of EU rules, it is just that the UK will no longer have any say in what the rules are. The UK Government will be unable to promote the positions that British industry and commerce wants to see adopted in EU policy. A cliche comes into mind. They (the Conservatives) want to have their cake and eat it!

However, from thereon the logic begins to develop holes. In particular, why on earth should the EU allow the UK, retrospectively, to opt out of ‘whole swathes’ of EU legislation? Indeed, short of a wholesale restructuring of the EU as a whole, this is analogous to what Trotsky once called ‘a transitional demand’. It is a demand that the system (in this case the EU) cannot possibly deliver. It would strike at the very point of the EU of having a democratic union where states agree to pool their sovereignty over commonly agreed areas of policy. This does not allow for member states to pick and choose which laws to go along with. Of course countries get derogations, usually on a temporary basis, but these have to be negotiated at the time the laws are made, not agreed retrospectively on the basis of political blackmail.

Of course, the constitutional strengthening of the bonds between Eurozone countries could, in theory, leave space for the EU countries outside the Eurozone to ask for a sort of ‘outer EU’ status with a looser set of arrangements than exist now. But this assumes that the other (now 11) non-Eurozone EU states actually want this. This seems unlikely. We may be left in a position where, after some ’re-negotiation’, the UK gets some very superficial (note the word ‘very’) face-saving changes in new agreements being  negotiated. Of course it is now almost certain that there will be a vote on UK relations with,  and/or membership of, the EU. It seems likely that the UK will be asked to vote on new Treaty changes. However, it is very unlikely that the EU will let Britain secede from ‘swathes’ of EU legislation. I for one, would very much urge the EU not to let any British Government get away with this, especially if environmental and energy legislation is up for grabs. Clearly the Conservatives do not like being told to try and achieve strict targets for renewable energy deployment and so on, but that is part of the bargain about getting some of your priorities in exchange for letting other people have theirs.

I am very much in favour of the UK staying in the EU which has authority over energy, environmental and social affairs, but what I am very much against is the prospect of the Conservatives having their cake and eat it. That is maintaining a say on the things they would have to adopt anyway, whilst opting out of laws that might improve the environment or social equity. The whole point of democracy is that everybody has a right to have a say in laws, but not on the basis of choosing what laws they should or should not be bound by.

Indeed, if such a ‘have your Tory cake and eat it’ proposition was negotiated, then I would probably vote ‘no’ in any referendum for the UK to stay in the EU. There would no longer be any progressive point in British membership. EU laws would be better without the often reactionary input of our own government, and the laws that we would be influencing would be ones that we would have to adopt anyway for trade reasons. Without the UK the EU would be more coherent and be able to adopt more progressive rules in the economic sphere. In short, the EU, the UK, and the world will be better off without the British being EU members if the British actually achieve a ‘renegotiated’ membership on Tory terms.